Written answers

Tuesday, 9 December 2014

Department of Finance

Pensions Legislation

Photo of John BrowneJohn Browne (Wexford, Fianna Fail)
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180. To ask the Minister for Finance if his attention has been drawn to the fact that the current Revenue Commissioners rules regarding pension schemes allow a married couple where both are employed outside the home to accrue total pension benefits of €4 million, whereas a married couple where only one spouse is working outside the home can only accumulate funds of €2 million; his views on an EU survey showing that the pensions gender gap is 35% and the way this discrimination meets the commitment in the statement of Government priorities 2014-2016 to address the gender gap in pensions; and if he will make a statement on the matter. [47155/14]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I assume that the €2 million figure and the multiple of that figure in the question are referring to the Standard Fund Threshold (SFT).

At the outset I should make clear that it is pensions tax legislation and not Revenue rules that provides for the limit or ceiling on the total capital value of tax-relieved pension benefits that an individual can draw down in their lifetime from all of their supplementary pension arrangements. This is known as the Standard Fund Threshold or SFT and was introduced by the Finance Act 2006, with effect from 7 December 2005, and amended since (most recently in Finance (No 2) Act 2013 which, among other things, reduced the SFT from €2.3 million to €2 million from 1 January 2014).

A higher limit, known as a Personal Fund Threshold or PFT, may be claimed where the capital value of an individual's pension benefits exceeded the SFT on the date of its introduction or on the dates of its subsequent reduction.

The SFT regime was introduced, and subsequently amended, mainly to deal with the abuse of the tax-relief arrangements for pensions, which resulted in pension overfunding by individuals and to place a constraint on the cost to the Exchequer of tax relief for pension saving. The regime deals with these issues at the point of pension drawdown in retirement rather than by applying restrictions to pension savings or accrual upfront.

There is no restriction or limit on the contributions that an individual can make to his or her pension savings on an ongoing basis (other than the standard earnings and age-related percentage limits that determine the annual level of tax-relieved contributions that can be made by an individual). As regards restricting  the level of pension benefits, in the case of occupational pension schemes, statutory rules in relation to tax relief restrict the maximum pension benefits payable under both defined benefit and defined contribution schemes to a pension of two-thirds of pre-retirement earnings, taking account of any benefits paid as retirement lump sums. This funding restriction does not apply to the personal pension plans (e.g. Personal Retirement Savings Accounts) of individuals who are self-employed or in non-pensionable employment for practical reasons. The SFT regime, on the other hand, does apply to all supplementary pension arrangements whether employer sponsored pension schemes or personal pension plans and across both the private and the public sector.

The SFT regime does not in itself, however, impose an actual restriction on the level of pension benefits. Instead, a significant tax charge is imposed on the capital value of retirement benefits above the SFT or PFT, as appropriate, when they are drawn down. In this way, the SFT regime acts to discourage the building up of large pension funds in the first place or unwinds the tax advantage of funding for benefits above the SFT or PFT limits by clawing back, through the significant tax charge, the tax relief granted.

The SFT has relevance and potential application only to individuals who are funding for or accruing pension benefits in pension saving arrangements approved by the Revenue Commissioners and who have relevant earnings out of which contributions to such arrangements are, or are capable of being, tax-relieved or tax subsidized. It has no direct application or relevance to individuals or taxpayers who are not in this position. Moreover, since the SFT operates as a limit or threshold at a relatively high value and only impacts when that threshold (or the higher PFT limit, if applicable) is exceeded, the funding for or accrual of pension benefits by the vast majority of individuals in pension saving arrangements are unaffected by the SFT regime.

Within the confines of its application as described, however, the SFT regime makes no distinction between individual taxpayers based on gender so that the Deputy's references to discrimination on these grounds is not understood.


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